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  • #990650
    Hobidi Bob
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    Hi guys,

    this is a question for my own curiosity and my father. My father works as a contractor for training companies. He is currently set up as a sole trader under his name. His fiance works 2-3 days a week as a cleaner.

    I have been thinking, would it be better for Dad to set up as a partnership so it is registered that his fiance “earns” a share to reduce wages?

    Thanking in advance for your advice.

    #1177981
    Hatching_It
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    Sounds like it may reduce the tax they pay as a couple.

    I’ve got a partnership with my girlfriend which is setup 50/50 so come tax time we obviously both just list 50 percent of the profit/loss on to our income.

    #1177982
    TehCamel
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    No, this is most likely Personal Services Income.

    At a simplistic rule, if more than 80% of your income comes from a single source and is basically for your personal exertion or experience then it’s classed as Personal SErvices Income.

    With a partnership situation, you’d have to ascertain which income stream came from which person and determine whether or not it was PSI, applying the relevant rules.

    If it is PSI, then it has to be treated as an individual’s income

    #1177983
    Hobidi Bob
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    Hey guys,

    thanks for the replies. TehCamel, when doing you EOY tax, there is declaration for stating who did what. My last business was a partnership with my wife who for the first 6 months did less than 10% of the work. At no time have we ever been asked who does all the work as it is set as a 50/50 partnership.

    In saying that, if they were to say that my dads fiance was to do all the paperwork, phones and behind the scenes, this would incloud more than the 20% allowed. if this is the case then would it be viable to change to partnership.

    #1177984
    TehCamel
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    I’m not sure if I said it before, but just in case, I’m not an accountant.. however, I suggest reading this.

    https://www.ato.gov.au/Business/Personal-services-income/In-detail/Companies,-partnerships-and-trusts/Personal-services-income—companies,-partnerships-and-trusts/

    you’re right in that there’s not a section that specifically asks who performed what work, but they do have some examples on that page.

    #1177985
    Brad Turville
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    I suggest speaking with your accountant. The PSI rules may apply and if so this should be declared under the Personal Services Income section of your tax return. There are different rules and test that apply here.

    As you mentioned, you do not specifically state what partner does what, but the PSI section on your tax return needs to be completed correctly and in the evident of an ATO audit or review, which are more common than most people think, this will all come to light and penalties for negligence will apply.

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